India is rapidly positioning itself as the world’s fastest-growing economy, projected to become the leading contributor to global GDP growth by 2028, according to a Bloomberg Economics analysis. To realize this ambitious forecast aligned with the vision of Viksit Bharat (Developed India), it is essential for the country to address several pressing issues. One of the most significant challenges is the regulation of its tobacco sector, which has the potential to shift from economic deficit to surplus earnings if managed with a visionary and practical approach.
As the world’s second-largest producer of tobacco, India generates an annual production of around 800 million kgs and stands as a leading exporter. Between 2019 and 2021, the average annual revenue collection from tobacco products was approximately INR 53,750 crore. The industry supports around 45.7 million people across various sectors, including farming, processing, and manufacturing, contributing over INR 12,000 crore in foreign exchange annually. For approximately 6 million farmers and 20 million farm laborers, tobacco cultivation is a vital source of livelihood and economic security, significantly contributing to the nation’s tax revenues.
Despite the economic advantages, the tobacco sector presents considerable challenges, particularly regarding health costs. With 250 million tobacco consumers in India, 5.3% of the total healthcare expenditure—both private and public—is dedicated to treating tobacco-related diseases, as highlighted in the report on ‘Human-Centric Approach to Tobacco Control.’ Additionally, rising taxes have fueled the illicit tobacco trade, depriving the government of crucial revenues. Euromonitor International reports that illicit cigarette volumes in India surged by 44% over the last decade, escalating from 19.5 billion sticks in 2011 to 28.1 billion sticks in 2020. In 2022, the total loss incurred by the Indian government due to the illicit tobacco industry amounted to INR 13,331 crore, funds that could have otherwise supported social welfare investments.The government’s recent proposal to expand Foreign Direct Investment (FDI) restrictions in the tobacco sector could exacerbate these economic challenges. Such restrictions threaten to deprive farmers of essential export opportunities, limit access to harm-reducing technologies, and diminish India’s competitive edge in the global market. The United Nations Conference on Trade & Development (UNCTAD) reported a 43% decline in FDI in 2023 compared to 2022, highlighting the urgent need for a more nuanced policy approach. Restrictive measures could hinder the Indian tobacco farming community's access to advanced technologies and fair pricing, undermining the nation’s ability to capitalize on the China + 1 strategy as countries like Vietnam, Indonesia, and the Philippines offer more attractive propositions for FDI.
Globally, the challenges of tobacco consumption have prompted significant initiatives aimed at reducing usage. India has taken numerous steps and implemented stringent regulations to protect public health. State-level initiatives complement nationwide regulations, forming a comprehensive tobacco control framework. However, the limited effectiveness of these measures indicates a need to rethink India’s tobacco control policies.A human-centric approach is vital for achieving effective economic results. According to the ‘Human-Centric Approach to Tobacco Control’ report, implementing WHO FCTC recommendations could decrease smoking-related deaths from 10 million in the 2030s to 6.5 million in the near future. This decline could be further accelerated by promoting better alternatives, such as nicotine gums, patches, lozenges, and heat-not-burn technologies for cessation, which would directly lower health expenditures. Furthermore, encouraging FDI could help curb the illicit import of foreign cigarettes, streamline business operations, and provide farmers with increased export opportunities, thereby boosting government revenues.
In conclusion, a comprehensive and balanced approach is urgently needed to effectively tackle the tobacco challenge and mitigate its growing negative impact on the economy. By adopting a forward-thinking policy framework, India can transform its tobacco sector from a source of economic deficit to a driver of surplus earnings, ensuring sustainable growth and prosperity for the nation.